05 Mar 11 The Union Budget 2011-12: Do we expect too much from the Finance Minister?

Last week, I was at a conference where one of the speakers was a Commissioner of Customs. Inevitably, given that the Finance Minister’s budget speech was a few days away, many questions were focused on the budget. One of these was about how the budget was kept secret.

His response was unusual, to say the least! He told us that there was nothing secret about the budget (he had actually participated in several budget exercises in his career with the Customs). His explanation was simple.

Every year, the size of the budget had to increase. If we raised x amount last year, it had to go up in the next. Like all good things, growth and inflation were inevitable! So the basic hypothesis was based on how to raise more money. After that it was a matter of tinkering with some rates here and there, to achieve that end. He also mentioned that no matter how much analysts tried to decode this, it was impossible, as none of us could ever hope to understand how and where this money really came from.

While I admired his candid statements, it was also a telling indictment on the transparency of the budget (and government finances). And equally on the ineffectiveness of the media and analysts, who invariably focus on the headlines, but cannot hope to understand the internals.

His subsequent statements were more illuminating. He said that we are all focusing on the wrong side of the accounting statement. Revenues have to increase year-on-year, and debating the benefits of xyz tax on abc sector were irrelevant. Ultimately, the benefits or otherwise to a particular sector were unimportant in the larger scheme of things. Given that the size of the budget is bound to increase every year, shouldn’t we focus on how the money is being spent?

After all, every accounting statement (which is what the budget is) has a revenue and expenditure column. And most of us focused on our self-interest, tend to look only at the revenue side of things, ie. tax changes and how they affect our individual interests. In consequence, we lose sight of the profligacy and waste on the expenditure side.

His advice to the audience was to focus on the spending, not on the revenue. I couldn’t agree more!

The most heartening aspect of the entire evening was the plain speaking by the Commissioner. This helped reinforce my opinion on the high calibre of Indian bureaucrats… they’re smart enough to make a real difference, if only their political bosses gave them a chance!

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Arun Jethmalani

Arun is one of the founders of ValueNotes. Apart from trying to build a high-quality research business, he has spent the last 27 years researching, analyzing, and dissecting companies and industries. He has worked with clients of all shapes and sizes, from all parts of the world – in providing them insights that make a difference to their business.
Prior to ValueNotes, he was an equity analyst/advisor, and wrote extensively on investing – including a column titled “Value for Money” which ran for 10 years in the Sunday edition of the Economic Times. To this day, he remains an avid “value” investor.
He has also been published in several other publications, and is a regular speaker at events related to technology, investing, competitive intelligence, business process management, Internet, etc. See: Valuenotes Events
He has been instrumental in developing a community of research and intelligence professionals in India, and is the founder and current chairman of the SCIP (India) Chapter.
Arun holds a B Tech from IIT, Bombay and an MS from Duke University, NC, USA.
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